Zhihu Inc. Reports Third Quarter 2021 Unaudited Financial Results

BEIJING,Nov. 22,2021 --Zhihu Inc. ("Zhihu" or the "Company") (NYSE: ZH),the operator of Zhihu,a leading online content community in China,today announced its unaudited financial results for the quarter ended September 30,2021.

Third Quarter 2021 Highlights

Average monthly active users (MAUs)[1] reached 101.2 million in the third quarter of 2021,representing a growth of 40.1% over the third quarter of 2020.

Average monthly paying members[2]reached 5.5 million in the third quarter of 2021,representing a growth of 109.9% over the third quarter of 2020.

Total revenues were RMB823.5 million (US$127.8 million) in the third quarter of 2021,representing a growth of 115.1% over the third quarter of 2020.

Gross profit was RMB424.8 million (US$65.9 million) in the third quarter of 2021,representing an increase of 93.0% over the third quarter of 2020.

"During the third quarter of 2021,we continued to deliver solid operating and financial results. As part of our campaign of upgrading content quality to a next level and to promote "fulfilling content," we focused on optimizing the content creation and distribution mechanisms for purposes of promoting and enhancing content fulfillness and made remarkable progress in the quarter. By expanding content vertical coverage and promoting content timeliness,content consumption experience was further enhanced on our platform,which contributed to a more diversified user base,with average MAUs crossing the 100 million mark for the first time. The various tools and functions that we introduced in the quarter to our content creators continued to improve their creation experience and enhance their monetization potential. We will continue to focus on incentivizing and promoting high-quality content creation in various formats and strengthen and develop monetization approaches within our community,with an aim of cultivating a sustainable and long-term growth momentum of our business." said Mr. Yuan Zhou,Chairman of the Board and Chief Executive Officer of Zhihu.

Mr. Wei Sun,Chief Financial Officer of Zhihu,added,"We continued to deliver strong results in the third quarter of 2021,driven by our unique content-centric business model. Average MAUs increased significantly on a year-over-year basis,coupled with our continued strengthening of value per user. Active content creation and vibrant user engagement,coupled with our continuously expanding user base constantly unleashes significant monetization potential. In the third quarter,content-commerce solutions revenue grew five times year over year. Despite the headwinds facing the general advertising industry during the period,our advertising revenue grew by 39%,reflecting solid commitment to our services and firm recognition of our content-centric marketing capability by our clients. In line with our long-term commitment to our users and content creators as well as our obsession with content,we continued to make investments that will support our long-term growth strategy,such as in the vocational training space."

Third Quarter 2021 Financial Results

Total revenues were RMB823.5 million (US$127.8 million) in the third quarter of 2021,representing an increase of 115.1% from RMB382.8 million in the same period of 2020. The increase was driven by our continued expansion of our user base and average revenue per active user.

Advertising revenue was RMB321.1 million (US$49.8 million) in the third quarter of 2021,representing an increase of 38.9% from RMB231.1 million in the same period of 2020. The year-over-year increase was primarily attributable to the continued expansion of our user base.

Paid membership revenue was RMB178.3 million (US$27.7 million) in the third quarter of 2021,representing an increase of 95.8% from RMB91.1 million in the same period of 2020. The year-over-year increase was primarily attributable to increases in our overall user base and paying ratio for the period.

Content-commerce solutions revenue wasRMB278.4 million (US$43.2 million) in the third quarter of 2021,compared with RMB45.5 million in the third quarter of 2020. The strong year-over-year growth was primarily driven by the rapid increases in both our user base and average content-commerce solutions revenue per MAU,reflecting our continued commitment to our content-centric monetization strategy.

Other revenues were RMB45.7 million (US$7.1 million) in the third quarter of 2021,compared with RMB15.1 million in the same period of 2020. The year-over-year increase was primarily attributable to continued growth of our vocational training and professional course programs as well as our e-commerce services.

Cost of revenues increased to RMB398.6 million (US$61.9 million) in the third quarter of 2021 from RMB162.8 million in the same period of 2020. The increase was primarily due to an increase in execution costs for our advertising services and content-related costs. The rapid growth in user traffic in the quarter also resulted in increases in our cloud services and bandwidth costs.

Gross profit was RMB424.8 million (US$65.9 million) in the third quarter of 2021,compared with a gross profit of RMB220.1 million in the same period of 2020.

Gross margin in the third quarter of 2021 was 51.6%,compared to 57.5% in the same period of 2020.

Total operating expenses were RMB747.3 million (US$116.0 million) in the third quarter of 2021,compared with RMB349.9 million in the same period of 2020.

Selling and marketing expenses were RMB374.7 million (US$58.2 million) in the third quarter of 2021,compared with RMB219.6 million in the third quarter of 2020. The increase was primarily due to an increase in expenses in promotion and advertising activities to attract new users and strengthen our brand recognition.

Research and development expenseswere RMB184.7 million (US$28.7 million) in the third quarter of 2021,compared with RMB77.2 million in the same period of 2020. The increase was primarily due to our continued investment in technical infrastructure and research and development capability.

General and administrative expenses were RMB188.0 million (US$29.2 million) in the third quarter of 2021,compared with RMB53.0 million in the same period of 2020. The increase was primarily due to an increase in share-based compensation expenses.

Loss from operations was RMB322.5 million (US$50.0 million) in the third quarter of 2021,compared with RMB129.8 million in the same period of 2020.

Net loss was RMB269.8 million (US$41.9 million) in the third quarter of 2021,compared with RMB110.0 million in the same period of 2020.

Adjusted net loss (non-GAAP)[3] was RMB112.4 million (US$17.4 million) in the third quarter of 2021,compared with RMB79.2 million in the same period of 2020.

Basic and diluted net loss per ADS was RMB0.46 (US$0.07) in the third quarter of 2021,compared with RMB2.15 in the same period of 2020.

Cash and cash equivalents,term deposits,restricted cash and short-term investments

As of September 30,2021,the Company had cash and cash equivalents,restricted cash and short-term investments of RMB7.6 billion (US$1.2 billion),compared with RMB3.1 billion as of December 31,2020.

Outlook

For the fourth quarter of 2021,the Company currently expects its total revenues to be between RMB1.01 billion and RMB1.03 billion. The above outlook is based on the current market condition and reflects the Company's preliminary estimates,which are all subject to change.

[1] MAUs refers to the sum of the number of mobile devices that launch our mobile app at least once in a given month,or mobile MAUs,and the number of logged-in users who visit our PC or mobile website at least once in a given month,after eliminating duplicates.

[2] Average monthly paying members for a period is calculated by dividing the sum of monthly paying members for each month during the specified period by the number of months in such period.

[3] Adjusted net loss is a non-GAAP financial measure. For more information on the non-GAAP financial measure,please see the section of "Use of Non-GAAP Financial Measure" and the table captioned "Unaudited Reconciliations of GAAP and Non-GAAP Results" set forth at the end of this press release.

Conference Call

The Company's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 22,2021 (9:00 p.m. Beijing/Hong Kong time on November 22,2021).

Dial-in details for the earnings conference call are as follows:

United States:

+1-888-317-6003

International:

+1-412-317-6061

Hong Kong,China:

800-963-976

Mainland China:

400-120-6115

Participant code:

3211613

Additionally,a live and archived webcast of the conference call will be available on the Company's investor relations website athttps://ir.zhihu.com.

A replay of the conference call will be accessible approximately one hour after the conclusion of the live call untilNovember 29,by dialing the following telephone numbers:

United States:

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code:

10161654

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH) is the operator of Zhihu,dedicated to empowering people to share knowledge,experience,and insights,and to find their own answers. Zhihu fosters a vibrant online community where users contribute and engage while respecting diversity and valuing constructiveness by promoting a culture of sincerity,expertise,and respect developed through years of cultivation. Zhihu is China's largest Q&A-inspired online community and one of the top five Chinese comprehensive online content communities,both in terms of average mobile monthly average users and revenue in 2020. Zhihu is also recognized as the most trustworthy online content community and widely regarded as offering the highest quality content in China,according to a survey conducted by CIC. For more information,please visit https://ir.zhihu.com.

Use of Non-GAAP Financial Measure

In evaluating the business,the Company considers and uses adjusted net loss,a non-GAAP financial measure,to supplement the review and assessment of its operating performance. The Company defines adjusted net loss as net loss adjusted for the impact of share-based compensation expenses,amortization of intangible assets resulting from business acquisition and tax effects of the non-GAAP adjustments,which are non-cash expenses. The Company believes that the non-GAAP measure facilitates comparisons of operating performance from period to period and company to company by adjusting for potential impacts of items,which the Company's management considers to be indicative of its operating performance. The Company believes that the non-GAAP financial measure provides useful information to investors and others in understanding and evaluating the Company's consolidated results of operations in the same manner as it helps the Company's management.

The non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. The presentation of the non-GAAP financial measure may not be comparable to similarly titled measure presented by other companies. The use of the non-GAAP measure has limitations as an analytical tool,and investors should not consider it in isolation from,or as a substitute for analysis of,our results of operations or financial condition as reported under U.S. GAAP. For more information on the non-GAAP financial measure,please see the tables captioned "Unaudited Reconciliations of GAAP and Non-GAAP Results" set forth at the end of this press release.

Exchange Rate Information

This announcement contains translations of certain Renminbi amounts into U.S. dollars at a specified rate solely for the convenience of the reader.Unless otherwise noted,all translations from Renminbi to U.S. dollars were made at a rate of RMB6.4434 to US$1.00,the exchange rate in effect as of September 30,2021 as set forth in the H.10 statistical release of the Federal Reserve Board.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts,including statements about the Company's beliefs and expectations,are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties,and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases,forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to," or other similar expressions. Further information regarding these and other risks,uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release,and the Company does not undertake any duty to update such information,except as required under applicable law.

For investor and media inquiries,please contact:

In China:

Zhihu Inc.

Email: ir@zhihu.com

The Piacente Group,Inc.

Helen Wu

Tel: +86-10-6508-0677

Email: zhihu@tpg-ir.com

In the United States:

The Piacente Group,Inc.

Brandi Piacente

Phone: +1-212-481-2050

Email: zhihu@tpg-ir.com

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts in thousands,except share,ADS,per share data and per ADS data

For the Three Months Ended

For the Nine Months Ended

September 30,

2020

June 30,

2021

September 30,

2020

September 30,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Revenues:

Advertising

231,141

248,272

321,072

49,830

524,112

783,074

121,531

Paid membership

91,056

154,872

178,307

27,673

216,099

459,751

71,352

Content-commerce solutions

45,530

207,431

278,415

43,209

59,328

606,691

94,157

Others

15,113

27,777

45,672

7,088

32,850

90,588

14,059

Total revenues

382,840

638,352

823,466

127,800

832,389

1,940,104

301,099

Cost of revenues

(162,773)

(261,798)

(398,617)

(61,864)

(407,678)

(866,031)

(134,406)

Gross profit

220,067

376,554

424,849

65,936

424,711

1,074,073

166,693

Selling and marketing expenses

(219,647)

(443,229)

(374,696)

(58,152)

(491,816)

(1,164,558)

(180,737)

Research and development

expenses

(77,233)

(120,620)

(184,657)

(28,658)

(247,404)

(411,579)

(63,876)

General and administrative

expenses

(52,985)

(163,243)

(187,972)

(29,173)

(183,865)

(513,411)

(79,680)

Total operating expenses

(349,865)

(727,092)

(747,325)

(115,983)

(923,085)

(2,089,548)

(324,293)

Loss from operations

(129,798)

(350,538)

(322,476)

(50,047)

(498,374)

(1,015,475)

(157,600)

Other income/(expenses):

Investment income

14,899

11,791

15,617

2,424

44,098

37,070

5,753

Interest income

3,336

8,251

9,850

1,529

20,616

21,428

3,326

Fair value change of financial

instrument

(38,810)

10,610

11,136

1,728

(19,572)

21,746

3,375

Exchange gains

36,847

5,458

8,724

1,354

20,877

13,489

2,093

Others,net

3,826

(5,076)

7,640

1,186

5,457

8,573

1,331

Loss before income tax

(109,700)

(319,504)

(269,509)

(41,826)

(426,898)

(913,169)

(141,722)

Income tax expense

(341)

(1,580)

(303)

(47)

(595)

(2,420)

(376)

Net loss

(110,041)

(321,084)

(269,812)

(41,873)

(427,493)

(915,589)

(142,098)

Accretions of convertible

redeemable preferred shares to

redemption value

(172,906)

-

-

-

(510,951)

(170,585)

(26,474)

Net loss attributable to Zhihu

Inc.'s shareholders

(282,947)

(321,873)

(938,444)

(1,086,174)

(168,572)

Net loss per share

Basic

(4.30)

(1.09)

(0.91)

(0.14)

(14.46)

(4.91)

(0.76)

Diluted

(4.30)

(1.09)

(0.91)

(0.14)

(14.46)

(4.91)

(0.76)

Net loss per ADS (Two ADSs

represent one Class A

ordinary share)

Basic

(2.15)

(0.55)

(0.46)

(0.07)

(7.23)

(2.46)

(0.38)

Diluted

(2.15)

(0.55)

(0.46)

(0.07)

(7.23)

(2.46)

(0.38)

Weighted average number of

ordinary shares outstanding

Basic

65,790,538

293,735,095

295,179,795

295,795

64,893,102

221,050,126

221,126

Diluted

65,126

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(All amounts in thousands,per share data and per ADS data)

For the Three Months Ended

For the Nine Months Ended

September 30,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Share-based compensation

expenses included in:

Cost of revenues

1,445

2,349

5,527

858

5,865

10,108

1,569

Selling and marketing

expenses

3,183

4,614

12,111

1,879

13,929

21,528

3,341

Research and development

expenses

(2,595)

2,709

21,764

3,378

10,668

32,081

4,979

General and administrative

expenses

28,850

111,073

116,489

18,079

85,875

344,046

53,395

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)

As of December 31,

2020

As of September 30,

2021

RMB

RMB

US$

ASSETS

Current assets:

Cash and cash equivalents

957,820

1,467,251

227,714

Term deposits

1,092,921

2,821,149

437,835

Short-term investments

1,046,000

2,485,585

385,757

Restricted cash

-

648,540

100,652

Trade receivables

486,046

699,485

108,558

Amounts due from related parties

13,843

18,321

2,843

Prepayments and other current assets

123,536

184,606

28,650

Total current assets

3,720,166

8,324,937

1,292,009

Non-current assets:

Property and equipment,net

8,105

8,351

1,296

Intangible assets,net

23,478

59,130

9,177

Goodwill

-

50,833

7,889

Long-term investments

-

19,456

3,020

Term deposits

-

162,135

25,163

Right-of-use assets

3,241

98,334

15,261

Other non-current assets

6,451

12,458

1,933

Total non-current assets

41,275

410,697

63,739

Total assets

3,761,441

8,634

1,355,748

LIABILITIES,MEZZANINE EQUITY AND

SHAREHOLDERS' (DEFICIT)/EQUITY

Current liabilities

Accounts payables and accrued liabilities

501,848

807,657

125,346

Salary and welfare payables

231,847

303,342

47,078

Taxes payables

7,066

21,151

3,283

Contract liabilities

159,995

253,987

39,418

Amounts due to related parties

45,983

66,439

10,311

Short term lease liabilities

2,893

29,495

4,578

Other current liabilities

64,936

121,340

18,831

Total current liabilities

1,014,568

1,603,411

248,845

Non-current liabilities

Long term lease liabilities

-

62,232

9,658

Deferred tax liabilities

-

11,030

1,712

Other non-current liabilities

-

45,000

6,984

Total non-current liabilities

-

118,262

18,354

Total liabilities

1,721,673

267,199

Total mezzanine equity

7,891,348

-

-

Total Zhihu Inc.'s shareholders' (deficit)/equity

(5,144,475)

7,010,564

1,088,022

Noncontrolling interests

-

3,397

527

Total shareholders' (deficit)/equity

(5,475)

7,013,961

1,549

Total liabilities,mezzanine equity and shareholders'

(deficit)/equity

3,748

ZHIHU INC.

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Net loss

(110,098)

Add:

Share-based compensation

expenses

30,883

120,745

155,891

24,194

116,337

407,763

63,284

Amortization of intangible

assets resulting from

business acquisition

-

-

1,980

307

-

1,980

307

Tax effects on non-GAAP

adjustments

-

-

(495)

(77)

-

(495)

(77)

Adjusted net loss

(79,158)

(200,339)

(112,436)

(17,449)

(311,156)

(506,341)

(78,584)

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